Federal Reserve May Consider Using Helicopter Money

Fed Chair Janet Yellen said it would only be used in an abnormal, extreme situation

Janet Yellen
Federal Reserve Chair Janet Yellen / AP
• June 16, 2016 4:40 pm

Federal Reserve Chairwoman Janet Yellen said that the central bank might consider using helicopter money in an extreme economic downturn, at a press conference following the Federal Open Market Committee meeting on Wednesday.

Helicopter money is a phrase used to describe the idea in which the government prints large sums of money in order to stimulate the economy.

Critics of helicopter money believe that the policy may lead to high inflation while proponents of the idea, such as Former Fed Chair Ben Bernanke believe that it is a valuable tool when conventional monetary policies are ineffective and when government debt is high.

While Yellen noted that some countries that print money to finance fiscal policy end up with hyperinflation, she said it remains in the Federal Reserve’s toolkit.

"In normal times I think it’s very important that there be a separation between monetary and fiscal policy and its primary reason for independence of the central bank," Yellen said. "We have seen all too many examples of countries that end up with high or even hyper inflation because those in charge of fiscal policy direct their central bank to help them finance it by printing money."

Yellen said that fiscal policy could be a very important tool in addressing weak growth or deflation.

"It’s natural that if it can be employed, that just as monetary policy is doing a lot to try to stimulate growth, that fiscal policy should play a role," she said. "Normally you would hope in an economy with those severe downside risks monetary and fiscal policy would not be working at cross-purposes, but together.

"Now whether or not in such extreme circumstances there might be a case for let’s say close coordination with the central bank playing a role in financing fiscal policy this is something that academics are debating and it is something that one might legitimately consider."

Yellen said this would be a very "abnormal, extreme situation" in an "all-out" attempt to aid an extreme economic downturn.